The farm economy in the seven states of the Tenth Federal Reserve District dipped in the second quarter of 2018 alongside a sharp drop in the prices of key agricultural commodities and weakened agricultural credit conditions, according to the Kansas City
Fed's Agricultural Credit Survey. Despite these challenges in the District's farm economy, farmland values have remained relatively steady and provided ongoing support to agricultural credit markets.

A decline in farm income accelerated slightly in the second quarter as crop prices plummeted in June. Farm income was expected to remain subdued across the District in coming months, especially in states more heavily concentrated in commodities, such as
soybeans, that have been targeted by retaliatory tariffs.

Ongoing weakness in the District's farm economy continued to dampen spending throughout the sector, and bankers indicated they expect borrowers to continue to reduce spending in coming months. The combination of persistently weak farm income and
reduced spending also continued to have an adverse effect on Main Street business activity throughout the Tenth District.

Agricultural credit conditions also weakened at a slightly faster pace in the second quarter, and bankers continued to report a modest increase in problems with loan repayment. On average, bankers reported that nearly 30 percent of the dollar volume of their
farm loan portfolios was experiencing at least minor repayment problems.

Interest rates on farm loans continued to rise in the second quarter, building on those of a year ago. While increased interest expenses are unlikely to have a significant impact on farm income in the short term, higher rates are likely to influence decisions in making
longer-term capital and real estate purchases. These recent increases in interest rates could continue to put pressure on the market for farm real estate, but farmland values generally remained steady. The annual rate of decline in the value of farmland in the
second quarter was relatively small for all land types across the District.